Don't Get Burned by Falling Rates

The Federal Reserve’s latest rate cuts mean some savers will have to think outside-the-box when it comes to stashing their cash.

(Image credit: RichHobson)

In early August, for the first time since the 2008 financial crisis, the Federal Reserve cut its target federal funds rate, lowering the rate by one-fourth of a percentage point. Kiplinger forecasts that two more quarter-point decreases are likely on the way, in September and in October.

Interest rates—even on savings accounts from prominent internet banks, which tend to prop up rates more than brick-and-mortar banks—began dropping a few weeks before the Fed announced the cut. Rates on some long-term certificates of deposit have been falling for months. The trend will likely continue, so savers will have to be creative.

One idea is to stash both your checking and savings balances in a high-yield checking account. The free Kasasa Cash Checking account (opens in new tab) from TAB Bank (opens in new tab), for example, recently yielded 4% on a balance of up to $50,000 if you meet monthly requirements of having at least one direct deposit or payment transfer and making at least 15 debit-card purchases.

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Investing in a CD that imposes no fee if you withdraw funds early is one way to capture some extra yield, says Ken Tumin, of (opens in new tab). You could, for example, put some savings in a seven-month no-penalty CD from Marcus by Goldman Sachs (opens in new tab) ($500 minimum deposit). It recently yielded 2.25%, compared with 2.15% for the bank’s savings account. If you decide that the money needs to be more accessible, transfer it to the savings account fee-free.

Slightly better deals for borrowers. If you have debt with a variable interest rate—such as on a credit card or home-equity line of credit and some private student loans—you may see a bit of relief. Based on average household credit card debt of $5,700 and an interest rate of 17.8%, a quarter-point rate reduction lowers the minimum monthly payment by about $1, says Ted Rossman, of (opens in new tab). If you refinance your mortgage (see Now Is a Good Time to Refinance), consider rolling any HELOC balance that you have into the mortgage.

Lisa Gerstner
Contributing Editor, Kiplinger's Personal Finance

Lisa has spent more than15 years with Kiplinger’s Personal Finance and heads up the magazine’s annual rankings of the best banks, best rewards credit cards, and financial-services firms with the best customer service. She reports on a variety of other topics, too, from retirement to health care to money concerns for millennials. She has shared her expertise as a guest on the Today Show, CNN, Fox, NPR, Cheddar and many other media outlets around the nation. Lisa graduated from Ball State University and received the school’s “Graduate of the Last Decade” award in 2014. A military spouse, she has moved around the U.S. and currently lives in the Philadelphia area with her husband and two sons.